Dcit Circle 3 1 Kolkata Kolkata v. M S Digboi Carbon Pvt Ltd Kolkata

1 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 In The Income Tax Appellate Tribunal Bench B Kol Kata Before Honble Shri N V Vasudevan Jm Dr Arjun Lal Saini Am Ita No 1628 Kol 2016 Assessment Year 2012 13 D C I T Circle 3 1 Versus M S Digboi Carbon P Ltd Kolkata Kolkata Pan Aaccd 2107 L Appellant Respondent For The Appellant Shri S Dasgupta Addl Cit Dr For The Respondent Shri Subash Agarwal Advocate Date Of Hearing 06 12 2017 Date Of Pronouncement 08 12 2017 Order Per N V Vasudevan Jm This Is An Appeal By The Revenue Against The Order Dated 31 05 2016 Of Cit A 1 Kolkata Relating To A Y 2012 13 2 Grounds Of Appeal Raised By The Revenue Read As Follows 0 L Whether On The Facts And In The Circumstances Of The Case And In Law The Ld Cit A Erred In Deleting Addition Of Rs L 04 27 78 1 Made By The A O On Account That Government Subsidy Is Not An Allowable Deduction U S 80 Ic 02 Whether On The Facts And In The Circumstances O F The Case And In Law The Ld Cit A Erred In Deleting Addition Of Rs 2 42 73 981 Made By The A O On Account That Excise Duty Refund Is Not An A Llowable Deduction U S 80 Ic 03 The Revenue Shall Always Crave For Adding Or Al Tering Any Ground On Or Before The Date Of Hearing 3 The Assessee Is A Company It Is Engaged In The Bus Iness Of Manufacture Of Claimed Petroleumcoke For A Y 2012 13 The Assessee Filed Return Of Income Declaring Total Income At Rs Nil The Assessee Was Entitled To Claim Deduction U S 80 Ic 2 A Iii Of The Act Sec 80 Ic 1 Of The Act Provides That Where The Gross Total 2 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 Income Of An Assessee Includes Any Profits And Gains Derived By An Undertaking Or An Enterprise From Any Business Referred To In Sub Section 2 There Shall In Accordance With And Subject To The Provisions Of Th Is Section Be Allowed In Computing The Total Income Of The Assessee A Deduc Tion From Such Profits And Gains As Specified In Sub Section 3 The Assessee Is A N Undertaking Or An Enterprise Referred To Sec 80 Ic 2 Iii Of The Act Viz An Undertaking Which Has Begun Or Begins To Manufacture Or Produce Any Article Or Thi Ng Not Being Any Article Or Thing Specified In The Thirteenth Schedule Or Which Manu Factures Or Produces Any Article Or Thing Not Being Any Article Or Thing Specified In The Thirteenth Schedule And Undertakes Substantial Expansion During The Period Beginning On The 24th Day Of December 1997 And Ending Before The 1st Day Of Apr Il 2007 In Any Export Processing Zone Or Integrated Infrastructure Develo Pment Centre Or Industrial Growth Centre Or Industrial Estate Or Industrial Pa Rk Or Software Technology Park Or Industrial Area Or Theme Park As Notified By The B Oard In Accordance With The Scheme Framed And Notified By The Central Governmen T In This Regard In Any Of The North Eastern States 4 There Is No Dispute With Regard To The Question As To Whether The Assessee Is Entitled To Claim Deduction U S 80 Ic 2 Iii Of Th E Act While Arriving At The Profits On Which The Aforesaid Deduction Was Claimed By The As Sessee The Assessee Considered Government Subsidies Of Rs 1 04 27 781 And Excise D Uty Refund Of Rs 2 42 73 981 As Profits Derived From The Business Of Manufacture Of Article Or Thing Viz Calcined Petroleum Coke Which Was Manufactured In A New Cent Ral Unit At Assam 5 The Ao Passed Order Of Assessment Did Not Accept The Claim Of Deduction U S 80 Ic 2 A Iii Of The Act The Cit A Accepted The Claim Of The Assessee The Revenue Is In Appeal Against The Order Of The Cit A Before The Tribunal 6 At The Time Of Hearing Of The Appeal It Was Brou Ght To Our Notice That The Honble Supreme Court In Civil No 7622 Of 2014 Judg Ment Dated 09 03 2016 Since Reported In 383 Itr 158 Sc Has Upheld The Order Of The Honble Gauhati High Court In The Case Of Meghalaya Steels Ltd 332 Itr 91 Gau Wherein The Question Whether 3 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 Deduction U S 80 Ic 2 A Iii Of The Act Would Be Available To Various Kinds Of Subsidies Like Transport Subsidy Power Subsidy In Terest Subsidy And Subsidy In The Form Of Refund Of Central Excise Duty Was Considere D And It Was Held That Such Deduction On The Aforesaid Subsidies Should Be Allo Wed It Was Also Brought To Our Notice That Cbdt Has Issued Circular No 39 2016 Dat Ed 29 11 2016 Whereby They Have After Taking Cognizance Of The Decision Of The Honble Supreme Court Referred To Above Instructed The Officers Of The Department Th At Subsidies Of Transport Power And Interest Given By The Government To The Industrial Undertakings Are Receipts Which Are Reimbursed For Cost Of Production Relating To Manuf Acture Or Sale Of The Products And Therefore Have A Direct Nexus With The Profits And Gains Of The Industrial Undertakings The Department Has Accordingly Directed The Officer S In The Field To Allow Deduction U S 80 Ic Of The Act On Such Receipts Also The Said Circular Also Mentions That Appeals Filed By The Department On The Above Issue Should N Ot Be Pressed 7 We Find That This Issue Has Been Elaborately Dea Lt With By The Honble Gauhati High Court In The Case Of Cit Vs Meghalaya Steels L Td Vide Order Dated 29 05 2013 Wherein Their Lordships Had Clearly Distinguished T He Decision Of The Honble Apex Court In The Case Of Liberty India Case And It Is P Ertinent To Go Into The Operative Portion Of The Honble Gauhati High Courts Decisio N In Respect Of Each Category Of Subsidy Which Is In Dispute Before Us 1 Transport Subsidy 88 In The Light Of What Have Been Discussed Above There Can Be Escape From The Conclusion That Transport Subsidy Was Aime D At Reducing The Cost Of Production Of The Industrial Undertakings Covere D By Transport Subsidy Scheme Thus There Was A First Degree Nexus Betwe En The Transport Subsidy On The One Hand And Cost Of Production O N The Other When Cost Is Reduced It Naturally Helps In Earning Of Profit A Nd At Times Higher Profits Such Profits And Gains Ought To Have Been Treated And Has Rightly Been Treated By The Learned Tribunal To Be Profits And Gains Derived From Or Derived By The Industrial Undertaking Concerned 89 The Revenue It Has Been Rightly Contended By M R Agarwalla Learned Senior Counsel Has Not Even Attempted To Distingui Sh The Decision In Jai Bhagwan Oil Flour Mills Case Supra In Any Mann Er Whatsoever When This Decision Makes It More Than Abundantly Clear T Hat Transport Subsidy 4 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 Goes On To Reduce The Cost Of Production Of The Ind Ustrial Undertaking Leading To Earning Of Profits And Making Of Gains B Y The Industrial Undertaking 94 Put Shortly There Is An Existence Of Direct Ne Xus Between Transport Subsidy On The One Hand And The Manufacturing Pro Duction Activities Of Industrial Undertaking On The Other Stands Well E Stablished Unless Shown Otherwise The Industrial Undertakings In The Pres Ent Set Of Appeals Which Have Been Granted Transport Subsidy Are Entitled T O Claim Deductions In Terms Of The Directions Of The Learned Tribunal 2 Power Subsidy 105 From A Combined Reading Of The Two Decisions Rendered In Rajaram Maize Products Supra And Eastern Electro Chemical Industries Case Supra What Becomes Transparent Is That Power Sub Sidy Is Meant To Enable A Person Meet A Certain Percentage Of Expenditure O N Power And Is Therefore Revenue In Nature However Though Reven Ue In Nature The Fact Remains That It Helps In Not Only Growth Of The Ind Ustrial Undertaking But Also Help An Industrial Undertaking To Earn Profits And Make Gains Such A Subsidy Though Revenue In Nature And Taxable Accor Dingly Is Nonetheless Covered By The Provisions Embodied In Section 80 Ib Or 80 Ic As The Case May Be 106 Situated Thus The Principle Deducible From T He Cases Of Sahney Steel Press Works Ltds Case Supra Rajaram Maize P Roducts Case Supra And Eastern Electro Chemical Industries Case Supra Is That When A Subsidy Granted By Government Is Operational In N Ature Which Helps In Generation Of Profits For Any Industrial Undertakin G Such A Profit Is Indeed Covered By The Provisions Embodied In Secti On 80 Ib Or 80 Ic As The Case May Be 109 We Now Turn To The Case Of Pancharatna Cemen T P Ltd Supra Wherein Amitava Roy J As His Lordship Then Wa S Has Upon Consideration Of The Subsidy Involved Took The Vie W That The Amount Of Subsidy Given By Way Of Assistance Or Grants By Th E Government Serves As Stimulus To The Willing Industrial Establishments T O Cater To The Growth Of The Region And Thus Reinforce The Eventual Income Of The Business Of The Undertaking Though The Case Of Pancharatna Cement P Ltd Supra Is As Right Pointed Out By The Learned Asg Arose Out Of A Writ Petition And Not An Appeal Under The Act The Fact Remains That The Law Laid Down Therein Is 5 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 Relevant In Determining The Controversy Which Is R Equired To Be Dealt With In This Set Of Appeals The Relevant Observations Appearing At Para 32 In Pancharatna Cement P Ltd Supra Is Therefore Quoted Below It Cannot Be Gainsaid That Having Regard To Th E Layout Of Investment And Income Designed For Any Commercia L Or Business Venture Reimbursement Of The Expenses Incurred To Whatever Extent Would Logically Contribute To The Profits And Gains Derived From The Related Enterprise And Thus Would Augment The Overa Ll Income The Amounts Of Subsidies As The Facts Of The Case Revea L Are By Way Of Government Assistance Or Grants Under The Schemes T O Provide Stimulus To The Willing Industrial Establishments To Cater T O The Industrial Growth In The Region And Therefore The Same Subsidy Are A Imed Necessarily At Neutralizing The Expenses Incurred And Thus Reinfor Ce The Eventual Income Of The Business Undertaking Emphasis Supplied 110 We Respectfully Agree With The Above Observati Ons Made In Pancharatna Cement P Ltd Case Supra And The La W Laid Down Therein 3 Interest Subsidy 112 The Facts Are Therefore Not In Dispute O N This Aspect The Dispute Is Whether The Interest Subsidy Is Payable On Non Operational Or Operational Subsidy If The Object Of The Relevant Scheme Is Borne In Mind It Clearly Shows That Interest Subsidy Having Aime D At Reducing The Interest Payable On Working Capital By An Industrial Underta King Helps Directly In Reducing The Cost Of Manufacturing Or Production Ac Tivities And Establish Thereby Direct And First Degree Nexus Between The I Ndustrial Activities Of The Assessee Respondents On The One Hand And The Inte Rest Subsidy On The Other Received By The Assessee Respondents And In Consequence Thereof Since Interest Subsidy Results Into Profits And Gai Ns Derived From Or Derived By An Industrial Undertaking There Is No Reason A S To Why Such Profits And Gains Earned By An Industrial Undertaking On The S Trength Of Such A Subsidy Namely Interest Subsidy Be Not Allowed T O Be Deducted From The Taxable Income Of The Industrial Undertaking Concer Ned 8 The Honble Gauhati High Court Had Distinguished The Decision Of The Honble Apex Court In Liberty India Case As Follows 124 Logically Extended This Would Mean That The Re Was No Relationship Or Nexus Between The Export Incentive On The One H And And Manufacturing Production On The Other Depb Entitl Ement Was Based On 6 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 The Artifice Of Deemed Import Content Of Export Pro Duct And Was Not Even Based On Actual Import Content Of The Export Produc T Whereas In The Cases At Hand The Transport Subsidy Was Made Available O N The Raw Material Actually Consumed In The Manufacturing Process And Finished Goods Which Were Actually Produced And Taken To The Existing Ma Rket For Sale And Similarly Power Subsidy Interest Subsidy And Ins Urance Subsidy Are As Already Indicated Above Made Available On The Actu Al Amount Of The Power Bill Interest And Insurance Premium Paid By The As Sessee Respondents Concerned The Inference So Drawn Gets Reinforced From The Fact That Depb Entitlement Was Freely Transferable And Saleable Re Sulting In Profit Or Loss 125 That The Case Of Liberty India Case Supra I S Not Applicable To The Cases At Hand Is Also Evident From The Fact That Th E Object Behind Depb Was To Neutralize The Incidence Of Customs Duty Payment On The Import Duty Of The Export Product And Hence The Depb Scheme Was Not Aimed At Neutralizing The Cost Of Production Rather As Obs Erved By The Supreme Court It Was An Incentive For Export And Entitleme Nt Arose When Export Was Made And Not Otherwise 127 Most Importantly Pointed Out The Supreme Cou Rt In Liberty India Case Supra That The Rules Do Not Envisage A Refu Nd Of An Amount Arithmetically Equal To Exemption Duty Or Central Excise Duty Actually Paid By An Individual Importer Manufacturer This Is The Striking Difference Between Subsidies On Transportation Cost Power In Terest And Insurance In The Cases At Hand On The One Hand And Duty Drawba Ck Scheme On The Other Inasmuch As The Subsidies So Provided To Th E Assesses Concerned Are Arithmetically Equivalent To The Cost Of Raw Ma Terials Actually Used In The Manufacturing Process And The Finished Goods W Hich Is Actually Taken To The Existing Market For Sale Within And Outside The North Eastern Region And Similarly The Assessees Concerned Have The Ri Ght To Receive Power Subsidy Arising Out Of Power Bills Paid Or Intere St Subsidy Or Insurance Subsidy Equivalent To The Amount Paid On Interest And Insurance Respectively These Aspects Of Depb And Duty Drawba Ck Scheme Give Rise To The Inference That The Decision In Liberty Indi A Supra Was Rendered In The Light Of Its Own Facts And Not For Universal A Pplication This Inference Gets Strengthened From The Following Observations M Ade In Liberty India Case Supra The Next Question Is What Is Duty Drawback Sec Tion 75 Of The Customs Act 1962 And Section 37 Of The Central Exc Ise Act 1944 Empower Government Of India To Provide For Repaymen T Of Customs 7 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 And Excise Duty Paid By An Assessee The Refund Is Of The Average Amount Of Duty Paid On Materials Of Any Particular Class Or Description Of Goods Used In The Manufacture Of Exp Ort Goods Of Specified Class The Rules Do Not Envisage A Refun D Of An Amount Arithmetically Equal To Customs Duty Or Central Exc Ise Duty Actually Paid By An Individual Importer Cum Manufacturer Su B Section 2 Of Section 75 Of The Customs Act Requires The Amoun T Of Drawback To Be Determined On A Consideration Of All The Circ Umstances Prevalent In A Particular Trade And Also Based On T He Facts Situation Relevant In Respect Of Each Of Various Classes Of G Oods Imported Basically The Source Of Duty Drawback Receipt Lies In Section 75 Of The Customs Act And Section 37 Of The Central Excis E Act Emphasis Supplied 128 In Short Thus The Depb And Duty Drawback Sch Eme Were Not As Already Indicated Above Related To The Business Of Industrial Undertaking Per Se For Its Manufacturing Or Production Entitle Ment For Depb Or Duty Drawback Scheme Arose When The Undertaking Decided To Export After Manufacturing Or Production And This Incentive Was Restricted Only To The Export Of Goods Of A Specified Class Consequently If There Was No Export There Was No Incentive From Depb Or Duty Drawback This Apart Depb Or Duty Drawback Scheme Did Not Provide Refund Of E Xemption From Central Excise Duty Actually Paid 129 Thus The Relationship Under The Depb Or Duty Drawback Scheme On The One Hand And The Manufacturing Or Production On The Other Was Not Proximate And Direct The Entitlement Was Based On The Artifice Of Average Amount Of Duty Paid In The Case Of Transport Subsi Dy Power Subsidy And Insurance Subsidy The Relation Between Subsidy Rec Eived On The One Hand And The Profits Earned Or The Gains Made By An Ind Ustrial Undertaking Stand As Already Observed At Paragraph 127 Well E Stablished 131 Liberty India Case Supra It May Be Noted I S Thus An Exposition Of Law On The Schemes Of Depb And Duty Drawback Scheme Which Relate To Export Of Goods By An Industrial Undertaking Where As The Scheme Of Transport Subsidy Interest Subsidy Power Subsidy And Insurance Subsidy Is Inextricably And Directly Connected With The Reduct Ion Of Cost Of Production And Manufacturing Of An Industrial Undertaking Enti Tling Thereby The Eligible Industrial Undertakings To Claim Deduction Under Section 80 Ib Or 80 Ic As The Case May Be 8 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13 132 The Decision In Liberty India Case Supra I S Therefore Not In Our Considered View Relevant To The Schemes Of Subsidi Es At Hand 9 The Honble Supreme Court Has Also Confirmed The Aforesaid View Of The Honble Gauhati High Court In View Of The Decision Of The Honble Supreme Court On Identical Issue On The Very Same Subsidy And Tak Ing Into Consideration All The Above Aspects We Are Of The View That The Orders Of Cit A Which Is In Conformity With The Decision Of The Honble Supreme Court And Cbdt Circ Ular Referred To Above Does Not Call For Any Interference We Therefore Do Not Find Any Merit In The Appeal By The Revenue Accordingly The Appeal Of The Revenue Is D Ismissed 10 In The Result The Appeal By The Revenue Is Dis Missed O Rder Pronounced In The Open Court On 08 12 2017 Sd Sd Dr Arjun Lal Saini N V Vasudevan Accountant Member Judicial Member Dated 08 12 2017 Rg Sr Ps Copy Of The Order Forwarded To 1 M S Digboi Carbon Pvt Ltd 37 A Bentick Street R No 301 Kolkata 700069 2 D C I T Circle 3 1 Kolkata 3 Cit A 1 Kolkata 4 Cit X 1 Kol Kata 5 Cit Dr Kolkata Benches Kolkata True Copy By Order Senior Private Secretary Head Of Office D D O Itat Kolkata Benches 9 Ita No 1628 Kol 2016 M S Digboi Carbon Pvt Ltd A Y 2012 13